1. Hurricane Katrina damaged a large number of oil refineries in the Gulf Coast, causing a large increase in crude oil prices (crude oil is a key input in producing gasoline). After the hurricane came, all consumers expected that the gasoline price would rise in the future. Suppose that the gasoline market is at equilibrium prior to the hurricane.
2. Use a graph to show all the effects on the gasoline market. Briefly explain what would happen to the equilibrium price and quantity.
3. Suppose that the price of gasoline is not allowed to change following the hurricane. That is to say, there is a price control in the gasoline market after hurricane. Provide a graph showing this price control. Is this a price floor or price ceiling? What are the consequences of not letting the price to change?